U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 18819 / August 3, 2004
SECURITIES AND EXCHANGE COMMISSION V. MICHAEL J. MCCLOSKEY, RANCE C. MILES, LUIS E. VALLEJO, AND DANIEL HARRIS, Case No. 1:04CV01294 (D.D.C.) (August 2, 2004)
SEC SUES FOUR INDIVIDUALS FOR INSIDER TRADING IN ADVANCE OF THE DEAN FOODS-SUIZA FOODS MERGER
Individuals Agree To Pay $306,062.71 In Disgorgement, Penalties and Interest
The Securities and Exchange Commission today announced a settled action filed against Michael J. McCloskey, Rance C. Miles, Luis E. Vallejo and Daniel Harris for engaging in insider trading in the securities of Dean Foods Company ("Dean Foods") in advance of the April 5, 2001 announcement that Suiza Foods Corporation would merge with Dean Foods. The Commission's complaint, filed in the U.S. District Court for the District of Columbia, alleges that McCloskey and Miles were officers of a dairy business that had entered into a confidential milk supply contract with Dean Foods in early 2001. According to the complaint, McCloskey and Miles obtained material nonpublic information from Dean Foods which they used to purchase Dean Foods securities the day before the Dean Foods-Suiza Foods merger announcement and to tip others including Vallejo, McCloskey's long-time friend, and Harris, Miles' broker. Collectively, the four defendants realized illegal profits totaling $113,801.
The Commission alleges that McCloskey and Miles received the last piece of material nonpublic information on April 4, 2001, when they were given the "green light" to make public their previously confidential milk supply agreement. McCloskey, in light of this and other information known to him, concluded that this meant the Suiza Foods-Dean Foods merger was "coming down." After receiving the information, McCloskey purchased 3,000 shares of Dean Foods stock on margin for $97,500. McCloskey also tipped others, including his long-time friend Luis Vallejo. Vallejo purchased 7,000 shares of Dean Foods stock the same day for $229,170. According to the complaint, Miles also purchased 500 shares of Dean Foods stock and 250 out-of-the-money call options contracts for $43,050 after receiving the information about the "green light" from McCloskey. Miles also tipped others, including his broker, Harris. Harris purchased 100 shares of Dean Foods stock for $3,259. He also tipped one of his clients, recommending that he sell short Suiza Foods stock.
After the public announcement of the merger on April 5, 2001, Dean Foods stock increased from its April 4, 2001 close of $32.50 to as high as $38.80 on April 5, 2001, or a 19% increase. Following the announcement, the four individuals sold their Dean Foods securities and realized substantial illegal profits. McCloskey sold his stock on April 5, 2001, realizing one-day illegal profits of $15,900. Miles sold his Dean Foods stock and options between April 5 and April 11, 2001, earning illegal profits of $60,530. Vallejo sold his stock on April 5, 2001, earning $36,830 in illegal profits. Harris sold his stock on April 5, 2001, realizing one-day profits of $541. McCloskey, Miles, and Harris each tipped others. Collectively, the tippees (other than Vallejo) earned $10,799.05.
Simultaneous with the filing of this action, the Commission has agreed to accept the individuals' offers to settle this matter. Each of them has agreed, without admitting or denying the allegations in the complaint, to the entry of a final judgment permanently enjoining them from future violations of Section 10(b) of the Securities Exchange Act of 1934 and Exchange Act Rule 10b-5. In addition, McCloskey has consented to pay $92,730.45, representing full disgorgement of his illegal profits and his tippees' profits (except Vallejo) in the amount of $25,930.65, prejudgment interest of $4,039.15, and a one-time civil penalty of $62,760.65 on his own profits and those of his tippees. Miles has consented to pay $133,311.34, representing full disgorgement of his and his tippees' illegal profits of $61,839.40, prejudgment interest of $9,632.54, and a one-time civil penalty of $61,839.40 on his own profits and those of his tippees. Vallejo has consented to pay $79,396.62, representing full disgorgement of his illegal profits of $36,830.00, prejudgment interest of $5,736.92, and a one-time civil penalty of $36,830.00. Harris has consented to pay $624.00, representing one dollar in disgorgement and a one-time civil penalty of $623 on his own profits and those of his tippee. In addition, Harris has agreed, based upon the anticipated entry of the injunction in this matter, to a Commission Order barring him from association with any broker or dealer with the right to reapply after two years.
The Commission also would like to acknowledge the assistance of the Pacific Exchange in this matter.